Political and credit risks

The concept of political risk refers to a specific kind of risk such as political, social or security changes that may have a profound impact on the interests of a company, financial institution, bank or investors in the context of its business activities. This includes conflict, riots, civil war, etc. It may also take the form of a political decision that prevents a transaction from running smoothly: blocked transfer of assets, confiscation, the unilateral refusal of the authorities to comply with their obligations, an embargo, nationalisation, expropriation, etc.

Political risk is a fundamental part of project risk, especially for large-scale industrial projects in unstable regions, emerging countries or detiorating security environments.

When this is the case, Coface offers insurance for the following risks: • non-payment • wrongful termination of contract • non-delivery of goods • confiscation of assets • non-transfer of dividends • non-reimbursement of loan maturities • licence cancellation • etc.

Credit risk is the risk that a debtor does not pay all or part of its receivables. It may be a business that has bought goods or a service from another company, or a business that has taken out a contract for a loan with a bank or financial institution.

As a specialist in trade credit insurance, Coface evaluates credit risk on a continual basis to help its clients have a full understanding. This solvency depends not just on factors that are entirely internal to the company but also on contextual factors such as geographical location (country risk), the global economic situation, the outlook for sectoral development (sectoral risk) or political risk.

Single Risk is a special type of insurance that provides cover for political and commercial risks (i.e. non-payment). This type of policy is designed specifically for complicated, long-term projects. The insurer draws up a bespoke policy with the client. The risk insurance is irrevocable.

Country risk assessment provides information about the average level of payment incidents presented by the companies in a particular country in the context of their short-term business transactions. This country risk assessment gives a more precise measurement of how the payment behaviour of companies is influenced by a country's economic, financial and political outlook together with the business environment.

The evaluation is based on three key areas: a macroeconomic, financial and political analysis; an assessment of the business environment by Coface entities worldwide; and Coface's payment experience as recorded in its global database.

The country risk assessment covers 162 countries using an 8-level scale: A1, A2, A3, A4, B, C, D, E in ascending order of risk. Coface's country risk assessments, which are updated every quarter, are available on our website free of charge.

They are of particular use for businesses that are keen to grow internationally - in emerging countries, for example - and which require political and credit risk insurance.